Primus sells $65 million; junk bonds slip with stocks on retail sales

By Paul A. Harris

St. Louis, April 13 - With light activity in Tuesday's primary market - Primus International Inc. priced a $65 million deal and that was all - traders kept a weather eye on cascading stock prices as they watched bond prices generally soften across the board.

With the Dow Jones Industrial Average declining 133.28 points, representing a 1.27% drop, one trader asserted that given the present circumstances in the U.S. economy there is simply no way to keep equity investors happy.

"They just can't have it both ways," the trader said.

"The pundits say that rates won't go up until earnings start to accelerate. Well it seems that earnings have started to accelerate," the trader said, referring to news that retail sales jumped an unexpectedly robust 1.8% in March.

"So now what do people freak out about?" the trader asked rhetorically. "They freak out about the rising cost of money.

"I think everybody is spooked. The media is hammering away on geopolitical volatility, rightfully so, perhaps.

"It's almost as if people are looking for a reason not to do anything, or to sell.

"And there aren't a lot of players out there right now. People are still on spring break."

Softness across the spectrum

The robust retail sales news, and the perhaps paradoxical decline in stock prices that it set in train, caused bleeding across the speculative-grade credit spectrum, according to the trader.

"The double-B stuff, which is interest rate sensitive, was off," the source noted. "And for the first time, with stocks getting shellacked, the single-Bs and the triple-Cs felt a little weaker.

"The airlines got smooshed," the trader added.

The source pointed to Delta Airlines' 8.30% notes of 2029. "A couple of days ago they were 58 bid. Today I'm seeing them offered at 55-56.

"Airline stuff is weaker pretty much across the board. But the volume is not huge."

Softening junk bond prices, according to this source, even registered an impact on the existing bonds of Levi Strauss & Co. The San Francisco jeans maker announced in its financial results for the first quarter that the company grew net sales and improved gross margins. First-quarter 2004 net sales were $962 million compared to $877 million for the first quarter of 2003, representing an increase of 9.7% on a reported basis and 3.5% on a constant-currency basis, the company stated in a Tuesday press release.

"They had numbers," the trader admitted, recalling that the company's existing paper has been seen to firm in trading over the course of the past fortnight.

"Everybody had been scratching their heads for the past two weeks, wondering why those bond had finally caught a bid," the trader commented.

"Rumors have been flying. There have been rumors about short covering. And there probably was short covering going on. Somebody said Wal-Mart was going to buy the company. And of course you had the numbers coming out, and were pretty good.

"Then people started selling."

The trader said that Levis 11 5/8% notes "got up to 87 bid, 88 offered. I even heard there was a trade slightly north of 90."

"But sell on the news," the source philosophized.

"By the end of the day we have the 11 5/8% 85.5 bid, 87.5 offered. So they're off about three points from their highs" - although that was still up on the day.

Another trader had Levi's 11 5/8s at 86.50 bid, 87 offered, and said that the bonds were "up two or three on the day."

And another source had Levis "up a couple of points."

Steel defies gravity

The trader who had seen Levi Strauss peak and fall back and airline paper decline Tuesday said that notable exceptions to the day's downward trend in bond prices could be found in the steel sector, which held firm.

The trader had existing bonds of Oregon Steel at 101.25 bid, 102.25 offered, off Monday's high of 102 bid.

Meanwhile AK Steel's 7 7/8% notes due 2009 were at 94.25 bid, 95.25 offered and the 7¾% notes due 2012 were at 91.50 bid, 92.50 offered

"They didn't fall off," the trader said. "They defied gravity."

Recent issues react variously

One trader, who quoted some Tuesday levels of recently issued notes, also observed that better than expected retail sales and falling stock prices both had negative impacts on junk bond prices across the junk credit range.

"It's funny," the trader commented. "The low coupon, better credit story types of names are getting punished because of spread, as Treasuries [weakened]. And with the stock market getting crushed, the riskier credits are getting crushed.

"However, given the events of the day I would have thought things would have gotten a lot softer. And that really hasn't materialized.

"Things are down but they're not getting killed."

For example, the trader said, Sierra Pacific Power Co.'s new 6¼% notes due 2012, which priced Monday at par, subsequently moved up to around 102, but were unchanged in Tuesday's trading.

Meanwhile Cablevision's new 6¾% notes, as well as its new 8% notes, were off about half to three-quarters of a point

The Cablevision floaters, meanwhile, were at 102.75 bid, 103.75, unchanged.

Likewise unchanged were the new notes from VWR International: its 8% bonds were at 104 bid, 105 offered, while the 6 7/8s were at 103 bid, 104 offered.

The recently issued dollar-denominated bonds of NTL Cable were firmer, according to the trader, who spotted the 8¾% dollar notes at 103.75 bid, 104.25 offered.

Meanwhile Superior Essex Communications LLC 's new 9% notes due 2012, which priced last Thursday at 97.24, continued the descent reported after Monday's trading. They were seen Tuesday at 94 bid, 97 offered, "and maybe even softer than that.

"They had to back it up to get it done," the trader commented. And I think people were not generally enamored. And with the stock market getting weaker it's just not trading well. It's not in strong hands yet."

Primus prices session's only deal

In the primary market, Tuesday's sole transaction was completed by Primus International Inc., which sold $65 million of five-year senior secured notes (B2/B+) at par to yield 10½%, at the tight end of the 10 3/8% area price talk.

Jefferies & Co. ran the books for the debt refinancing deal from the Bellevue, Wash.-based aerospace supplier.

Details on upcoming sales

On Tuesday Charter Communications Operating LLC/Capital Corp. updated information on its in-the-market offering of $1.5 billion of senior secured second lien notes (B-), which expected to price on Tuesday April 20.

The company will offer the bonds in two tranches. One tranche will be have an eight-year bullet structure, while the other will have a 10-year non-call-five structure.

JP Morgan, Banc of America Securities, Citigroup and Credit Suisse First Boston are joint bookrunners for the debt refinancing deal from the St. Louis-based cable television and communications services provider.

Meanwhile price talk of 6 3/8%-6 5/8% emerged Tuesday on Ferrellgas Escrow LLC/Ferrellgas Escrow Finance Corp.'s $250 million of 10-year senior notes (Ba3/BB-), which are expected to price on Wednesday via Credit Suisse First Boston and Banc of America Securities.

And finally, the price talk is 8¼%-8½% on Midwest Generation, LLC's planned $1 billion of 30-year second priority senior secured notes (B-), expected to price on Thursday.

Credit Suisse First Boston, Citigroup, Lehman Brothers and JP Morgan are joint bookrunners.

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